Economics 3.0

Introduction

1.Economics

The social science concerned with the satisfaction of human wants and needs based on choices

2.Microeconomics

*The study of very specific economic issues

-Individual firm

-Specific household

-Specific product

3.Macroeconomics

*The study of the economy as a whole of its subdivisions

-Consumers

-Total output of firms

-Unemployment inflation

4.Other things being equal

*Ceteris Paribus (latin)

*All things remain constant in an assumption except the variables under consideration

5.Economic Policy

*Economic ideas that are applied to a nation to fix specific problems or increase the economy

6.Economic Biases

*Causation fallacies

*”Post HOC,ergo propter HOC”

- After this, therefore, because of this”

- One event happens before a second event therefore the second event was caused by the first

*”Status Quo” means “No Change”

History

1. Economics has existed for thousands of years but has only been extensively examined in the last several hundred years

*Adam Smith was the first person to write a detailed book- “The Wealth of Nations” 1776. This book dealt with —- reputation with an idea called the “Market System”

*The market system is a free method of buying and selling consumers are the voters of what is made and sold consumers vote when they buy something

*The market will therefore regulate itself by making what is needed for the consumers. This philosophy is known as the “Invisible Hand”

2.Early in the 1800’s David Ricardo refined Smith’s ideas

*Specialization-The idea that becoming an expert in one area is more profitable than doing many things

*Specialization results in greater efficiency and therefore greater “productions” (idk)

*Between nations the efficiency can be measured by comparative and of what it cost to produce any good or service

3. In the mid 1800’s Karl Marxs was disillusioned with free market economics. He developed an idea centrally controlled economic policy by the government. This is known as socialism. Marxs wrote two key books that would shape the twentieth century

*Das Kapital- Marx wrote to explain how market capitalism was used to keep certain classes of people in subservice, and how all history was based on economics

*The communist manifesto-Described an economy with only one class where everyone was economically equal. This only class was known as

The Proletariat- The worker

4. John Maynard Keynes

*A key economist of the twentieth century shortly after The Great Depression wrote “General Theory of Employment, Interest, and Money” Keynes attached standard free market economics and developed a macroeconomic approach

* Keynes developed the idea that underspending will occur,supplies build, and massive selloff will occur to reduce supply; This will also result in less employment to save money a recession or depression will follow. He advocated for governments to print money to escape the depression. This is known as “Keynesian Theory”

Demand

1. Law of Demand

* All else being equal as price decreases quantity demand rises, and as prices increases quantity demand drops

*Law of demand is an inverse relationship between price and quantity

*Diminishing Marginal Utility- The consumer derives less satisfaction from each successive unit purchased AUA- Law of Diminishing Returns

*Lower price increases the purchasing power of the consumers money

*Substitution Effect- Consumers will substitute less expensive items for higher priced ones

2. Shift in Demand

* Determinants of demand are effects that will change demand also known as demand shifters- ceteris paribus is not in effect

* Five primary things change the demand curve and cause it to shift

-Consumer tastes and preferences

-Number of consumers in the market

-Consumer money income

-Price of related goods

-Consumers expectations about future prices and incomes

*A favorable..

*…

Supply

1. Law of supply

*As price rises the corresponding quantity supplied rises. As price falls the quantity supplied falls

*Price is revenue to produces: As price increases there is incentive to make more thus increasing revenue

2. Determinants of Supply

*Several factors will influence the supply curve ceteris paribus is not in effect

-Resource prices

-Technique of production

-Taxes and subsidies

-Prices of other goods

-Price expectations

-Number of sellers in the market

*These factors that affect the supply curve are also known as supply shifters

*A positive factor will cause the supply curve to shift to the right which will represent an increase in supply

*The inverse (a negative factor) will cause the curve to shift to the left

Concept of Supply and Demand

1.Market Equilibrium

* The supply and demand curve may be brought together to represent the best possible solution for both consumers and producers

*Where the demand curve and the supply curve interest is called the equilibrium point. It represents a point where there is no surplus and no shortage this creates the optimum price for a specific quantity

*Surpluses are created by overpricing

*Shortages are created by underpricing

2. Market Equilibrium (con’t)

*The determinants of demand and supply can cause the curve to respectively shift

*Changes can occur in one curve or both curves simultaneously creating complex equilibrium situations

- Supply increase/demand increase

-Supply decrease/demand increase

-Supply increase/demand decrease

-Supply decrease/demand decrease

Capitalist Ideology

1. Basic tenants of capitalistism

-Private property: Ownership and use by individuals not government control

-Freedom of enterprise and choice: People are free to organize businesses as they see fit

-Self interest as a primary motive: A driving force in capitalism people can make as much as possible- There is no limit

-Competition: Independently acting buyers and sellers: Freedom to enter or leave any given market

-Reliance on the market system: The market economy is the primary mechanism used. Decisions are made by buyers and sellers

-Limited role for government: Pure capitalism is self regulating government only needs to be involved in…. (ask abel or mathew for notes)

2.Invisible hand

*The belief that capitalism will always dictate the best market price for the right amount of supply

*Supply and demand will communicate the wants of society to the producers

*Three factors influence the invisible hand:

-Efficiency

-Incentives

-Freedom

A capitalist society is a free society- Free market economy

* A socialist society is not free- Command economy

Business Organizations

1.Entrepreneurs- people that see a demand and create the supply for that demand. Start a business and take the risk

2.Sole Proprietor- the individual that starts a business

3.Partnerships:

-General

-Limited

-Limited liability

4.Corporations

*Range of businesses owned by stockholders

-Apple

-Google

5.Franchise

-Pay a fee to a parent company

-McDonalds was the first great franchise Ray Kroc came up with the idea after buying it off the McDonalds brothers

Labor

1.Employment

*16 and older and:

-Worked 1 hour in the last week

-15 or more hours in a family business

-Hold a permanent job are employed (30 hours)

2.Unemployment

*Have searched for a job in the last four weeks

*Not looking for a job does not count as unemployed

3.Education

*Higher education generally leads to higher pay

-4 year college

-2 year college

-High school

-Less than high school

4.Types of labor

*Professional- Teachers,doctors,lawyers,managers,bankers

*Skilled- Carpenters,plumbers,electricians,police,firefighters,chefs

*Semi-skilled- Paralegals,dental assistants,lifeguards,cooks

*Unskilled- Cashiers,dishwashers,stockpeople,janitorial

5.Wages by ethnicity and gender

*Caucasian males

*African-American males

*Hispanic males

*African-American females

*Hispanic females

6.Labor unions

*People that bond together to get safer working conditions and higher pay

*Professional skilled union

-Teachers

-Police

-Firefighters

*Trade unions

-Carpenters

-Plumbers

-Electricians

*…….

Money

1.Money (uses) is anything that serves as:

*Medium of exchange

*Unit of account

*Store of value

2.Characteristics of Money

*Durability

*Portability

*Limited supply

*Uniformity

*Divisibility

*Acceptance

3.Money over time

*Jewels

*Silver/gold

*Paper money (fiat money) federal reserve notes

*Electronic money (fiat money)

4.America was on the gold standard until 1933

*That means for every dollar there had to be a dollar of gold stored somewhere in a bank

*States used to print out their own money

*Since 1913 american dollars are federally reserve notes not state money

5.Banks rose up to collect debt and loan money

*Amadeo P. Giannini created bank of America are of the worlds largest bank

6.USA’s national bank is the federal reserve system bank (FRS) created in 1913

Stocks

1.Stock is when a company sells part of its value

2.People can buy part of a company

3. The company determines how much stock it will sell then creates a number of shares to sell

4.Each share is worth a portion of the company

5.Stocks are bought and sold on stock markets

-DOW

-NASDAQ

-S and P 500

6.Companies that sell stock must have a board of directors

7.If the founder of a company sells off too much stock they might lose control of the company this is known as a hostile takeover

8.Board of directors are voted on by the stockholders

Incentives

1.Incentives

*Monetary- A monetary value is given to a person or a group to do something

-Taxes: pay less tax for each child

Result people will have more children

*Non monetary-something that has value to a person but no direct monetary value

-Extra credit on a test-People will do additional work to get a higher grade

Property

1.Physical property

*Rights-People must have properly protected this encourages investment. Innovation and exchange as well as economic growth

*Property may be bought or sold,and disposed as the owner sees fit whether it be donated to charity or passed to family

2.Intellectual Property

*Art,ideas,writing are also protected with laws

-Patents for innovations

-Copyrights for literature or art

3.Protection

*Allows people to focus on production of good services rather than property production

…….

Profit

1.Profit

*Additional amount of money that is made after all economics costs have been paid

*Normal profit- The value of an entrepreneur’s service included in economic cost

*Pure Profit- An additional value that is made on top of entrepreneur’s service

*The more profit the greater resources are accumulated by the entrepreneur’s service

*The amount of profits a main factor in market economics

Financial Markets

1.Financial Markets

*Companies can sell portions of their company to investors. This is called stock

*Investors are part-owners

*As companies make profit the value of the stock declines

*The investors are free to buy and sell any amount of stock